Monday, February 27, 2017

why my startup failed

The original idea for Echelon Exchange originated when I was 16, when I built an extremely rough and barely functioning prototype. Due to paranoia that somebody could steal my “genius” idea, and simple lack of knowledge, I shelved the idea until the summer of 2016 when I started to think about my life post college graduation. I really wanted to be an entrepreneur, to be my own boss. From the summer of 2016 to december of 2016, I was in startup zombie mode, just lingering in the dead zone, neither progressing or regressing. In January of 2017, I joined an incubator. Here I learned a lot of stuff, including how to stop drinking my own kool aid, stop playing startup, and actually build a business. Fast forward to present day (february 2017) and my startup is dead.

In no particular order, here’s why:

I lacked the passion behind my idea. Don’t get me wrong, I liked working on Echelon Exchange, but I was never truly in love with it, I never obsessed about it. This taught me that passion plays a huge role in startups, and in life in general. I am now currently doing some soul searching to find out what I’m passionate about in life and what I would like to do next. I’m now a strong believer that almost anything is possible, as long as you have enough passion in it and are willing to do whatever it takes to succeed.

Another key proponent which I lacked was a thoroughly developed SWOT analysis. I don’t like to read manuals when I buy new stuff, so I usually just jump right in and start putting stuff together. This really bit me in the butt this time. Honestly, the sheer thought of having to use a payment processor never even crossed my mind until I needed to find one, and I was building an online exchange of transactions! In total, I contacted between 15 and 20 different payment processing companies, and all cited different reasons for being unable to work with my startup including responses such as "too high risk" and "out of our scope of business." Had I developed a thorough SWOT analysis at the beginning, I would’ve saved myself money, time, and opportunity cost of not pursuing other projects.

One of the main value propositions behind Echelon Exchange was that it was revolutionary. Unfortunately, I’ve come to learn that simply being revolutionarily does not equate to value. Something completely new can be created, but if it doesn’t solve a problem or a pain point, then there’s no value created. Most of the key features for Echelon Exchange, weren’t even as revolutionary as I thought them out to be in the first place. They were mostly just twisted and turned models of pre-existing platforms in disguise using fancy words and a simplified UX.

I overdosed on complexity. For having a mission statement saying “Investing should be simple enough for everybody,” I had made an overly complicated system. It’s ironic because simplicity was another one of the main value propositions. Very few people who I talked to about Echelon Exchange truly understood exactly what it was. A huge amount of trust is required in the financial services / fintech industry, and without first understanding, there cannot be trust.

Regulatory issues were a true nightmare and made me never want to work in fintech again. Some nights I’d go to bed wondering if I had broken any laws and if I did, how long my incarceration would be. I looked to competitors to see how they navigated the system, and it turns out they were even much worse than I was. One startup was using a 3rd party payment processor that stricly prohibited the use of processing investment vehicles, yet somehow they still managed to operate, and rather successfully. However, someday their whole structure might come crashing down on them, and when it does, their entire exchange will be ruined and their customers’ trust will be lost.

There were some pretty good things though as well:

I succeeded in keeping startup costs remarkably low. Throughout the whole project, I only spent $267.62. This amount includes registering as an L.L.C., paying for a domain with 1 year of hosting, purchasing a dedicated IP address for the SSL certificate and paying $50 in late fees for taxes which I never received a letter about until it was too late. Originally, my developer quoted me $2,000 to develop the MVP, and I counteroffered 10% equity in the company. Many of my peers scolded me for offering so much equity but I think it was the sweet spot. I didn’t have $2,000 to pay him, I wanted him to be motivated, and he was doing a lot of work, especially considering it was a SaaS platform.

Another thing that rocked was the level of communication with my developer. We both worked together remotely and operated efficiently. We usually had 1 week development cycles, meaning each week we’d implement a new feature. Sometimes he was a day or two late but nothing detrimental, I never minded. He was a few time zones ahead of me, so when I would wake up in the morning most of the work he did that day would already be live, it was great.

I learned a lot from this failure. I’m definitely now a firm believer that the path to success is through failure. In a way, this startup wasn’t a failure at all. It was simply a valuable lesson for the future. As for my next project, I am still unsure what it will be (my idea list currently has 71 items). Whatever it may be, it will be something that I am truly passionate about.

3 comments:

Thanks for the post, Michael. Learning from failure isn't easy, but I think you're right when you say it's necessary. Consider the $267.62 you spent as a down payment on your success with future start-ups.

I'm glad you also talked about your successes and not just your failures. Maybe (maybe not) the 10% equity for your developer lacked foresight, but at least you learned how it feels to have great communication with a business partner. I wonder if your developer also suffered from a lack of passion?